IMF sees the GCC’s non-oil economy shrinking 0.8% this year as the war spreads beyond oil

The GCC’s non-oil economy is set to contract 0.8% this year before growing 4.5% in 2027, according to the IMF’s Regional Economic Outlook report for the Middle East and Central Asia (pdf). The bloc as a whole is forecast to shrink 4.8% this year before rebounding 9.1% in 2027, a 6.8 percentage-point cut from the 2% growth the IMF expected in April.

The rebound next year won’t make up for lost ground. Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said last week that Gulf output would still be below its pre-war trajectory in 2030, citing lasting damage to some sectors, disrupted infrastructure, and the extra spending needed to build resilience.

The Gulf’s financial cushions are getting thinner. The GCC’s combined fiscal deficit is set to widen to 2.3% of GDP this year from 0.8% in 2025, and its current-account surplus to narrow to 1.3% of GDP from 5%. Subsidies, price controls and currency pegs have limited how much of the jump in commodity prices reaches consumers, but at a fiscal cost. Meanwhile, GCC inflation is projected to rise to 2.7%.

The squeeze varies by country. The World Economic Outlook last week projected that the UAE’s current-account surplus will shrink to 4.8% of GDP this year from 13.3% in 2025, and Qatar’s to 7.1% from 16.4%. Kuwait’s surplus narrows to 18.3% from 22.7%, and Bahrain’s to 3.6% from 5.0%. Saudi Arabia’s deficit widens to 3.5% from 2.6%. Oman is the exception, swinging from a 1.1% deficit to a 5.0% surplus, consistent with its being the only GCC economy still growing.